Asking Wall Street pros: Could Fed interest rate hikes muck up the markets?
After months, if not years, of suspense and speculation, the Federal Reserve has finally begun lifting interest rates off the record-low levels imposed in the aftermath of the financial crisis. As part of our 1st-quarter 2016 Bankrate Market Mavens survey of leading financial market analysts, we asked:
Do you see a risk that the Fed's attempts to "normalize" interest rates could cause disruption in the financial markets over the next year?
-- Barry Armstrong, president, Armstrong Advisory Group
-- Brian Belski, chief investment strategist, BMO Financial Group
"They will move very slowly."
-- Scott Bishop, director of financial planning, STA Wealth Management
"I think it is already priced into the market."
-- Cary Carbonaro, author, "The Money Queen's Guide for Women Who Want to Build Wealth and Banish Fear"
"I don't think the Fed will run the risk of too much rate tightening given the economic uncertainties. Thus, I see the first 1 or 2 increases merely as window dressing."
-- Chuck Carlson, CEO, Horizon Investment Services
"It's taken the Fed so long that they've hopefully thought of a multitude of contingencies."
-- Marilyn Cohen, president, Envision Capital Management
"Economic growth is tepid at best, and many of the possible headwinds, like a return to more normal profit margins, could overwhelm a fragile recovery."
-- Michael K. Farr, president and CEO, Farr, Miller & Washington
"We're talking 25 basis point increases. Not a huge move, numerically speaking."
-- Kim Forrest, vice president and senior equity analyst, Fort Pitt Capital Group
"(The recent rate increase was) the most telegraphed Fed move in history."
-- Jeffrey A. Hirsch, editor, Stock Trader's Almanac
"While the Fed will undoubtedly remain dovish, market disruptions are likely to occur as investors overestimate the Fed's aggressiveness."
-- David Lafferty, chief market strategist, Natixis Global Asset Management
"Likely low (risk), because the Fed will refrain from additional hikes if it sees a disruptive response to its policy changes."
-- Charles Lieberman, managing partner and chief investment officer, Advisors Capital Management
"Early rate increases are typically, as now, associated with an improving economy -- and therefore with a rising market. While short-term turbulence is quite likely, the fact that the Fed now feels confident enough to raise rates should make all the other actors feel much better -- and support both the economy and the markets."
-- W. Bradford McMillan chief investment officer, Commonwealth Financial Network
-- Ken Moraif, senior advisor, Money Matters
"When you've been at the 'zero bound' for 7 years, there is inherent risk built into a change in policy. The Fed is apt to raise the federal funds rate at a time when the U.S. economy is still running below potential and many other developed economies are struggling to produce growth. The Fed is putting its credibility on the line now, expressing its confidence in being able to raise the federal funds rate and then asserting that it thinks subsequent rate hikes will likely only happen gradually. If the Fed ends up choking off the sluggish recovery with its initial rate hikes, it will be a blow to investor confidence. Conversely, if the data unfold in a way that suggests the Fed is behind the curve, investor confidence will be rattled by the need to raise rates at a faster pace. It's a very delicate policy line the Fed needs to walk to maintain investor confidence, and that fine line creates some high risk potential."
-- Patrick J. O'Hare, chief market analyst, Briefing.com
"The Fed is likely to remain dovish as it raises rates, meaning that a very slow and measured approach will likely be taken. This should greatly reduce the probability of causing a recession or outsized impact on markets."
-- Oliver Pursche, CEO, Bruderman Asset Management
"These are well-read and well-trained economists who know more about monetary policy than anyone else. … Those who like to play armchair quarterback with monetary policy are akin to the people who regularly second-guess calls by NFL head coaches. You are NOT a professional, and you do NOT have the expertise or understanding you think you do. I trust the institution and the experts who lead it -- not hysterical websites sponsored by gold bullion companies."
-- Jeff Reeves, executive editor, InvestorPlace.com
"Expect the Fed to move very slowly -- (with) limited disruption."
-- Brian Rehling, co-head of global fixed income strategy, Wells Fargo Investment Institute
"The Federal Reserve, as it implements monetary policy tools to keep the actual federal funds rate at or near its targeted (level), may see short-term market reactions that are disruptive initially, but the financial markets will rapidly adjust to this new normal."
-- Don Taylor, Bankrate's Dr. Don, president and chief analyst, Emmett Advisers
"The U.S. and the global economies have very little tolerance for rate hikes: (1) Fed rate hikes and a strengthening dollar will exacerbate the capital flight from (emerging markets) and likely trigger financial instability; (2) tightening monetary policy is likely to add to the growing stress in U.S. credit markets, where corporate bond spreads have been widening and firms have become more dependent on the credit markets to finance (capital expenditures) and share buybacks; (3) asset valuations in the U.S. are stretched across a broad swath of asset classes and highly vulnerable to monetary policy tightening, or even expectations thereof."
-- Srinivas Thiruvadanthai, director of research, Jerome Levy Forecasting Center
"The underlying fundamentals of the economy do not support (higher rates). Labor force utilization, declining corporate profitability and declining real wages are not a strong backdrop for a rate increase.."
-- Mark Willoughby, senior vice president, Hilliard Lyons